QUESTIONS PRESENTED:

1. Must an intermediary entity that enters into a financial risk
sharing arrangement with an insurer, pursuant to the provisions of N.Y. Comp. Codes R.
& Regs. tit. 11, Part 101 (2002) (Regulation 164), obtain a license as an insurer?

2. If an intermediary entity is allowed to enter into such arrangement,
would such entity be engaged in the corporate practice of medicine?

Conclusions:

1. An intermediary entity that enters into such financial risk sharing
arrangement is not required to obtain a license as an insurer so long as the arrangement
is in compliance with the provisions in N.Y. Comp. Codes R. & Regs. tit. 11, Part 101
(2002) (Regulation 164) and N.Y. Pub. Health Law § 4403(1)(c) (2002).

2. This question is outside the jurisdiction of this Department.

Facts:

The inquiry is general in nature. No specific facts were given.

Analysis:

(a) In this article: (1) "Insurance contract" means any
agreement or other transaction whereby one party, the "insurer", is obligated to
confer benefit of pecuniary value upon another party, the "insured" or
"beneficiary", dependent upon the happening of a fortuitous event in which the
insured or beneficiary has, or is expected to have at the time of such happening, a
material interest which will be adversely affected by the happening of such event.

(2) "Fortuitous event" means any occurrence or failure to
occur which is, or is assumed by the parties to be, to a substantial extent beyond the
control of either party.

N.Y. Ins. Law § 1102(a) (McKinney 2000) prohibits the doing of an
insurance business without a license, unless the person or entity is exempt from the
licensing requirements.

At issue is whether an intermediary entity that enters into a financial
risk sharing arrangement with an insurer, pursuant to N.Y. Comp. Codes R. & Regs. tit.
11, Part 101 (2002) (Regulation 164), is engaging in an insurance business and, if so,
requires a license to do such business in New York.

(c) The term financial risk transfer shall mean the contractual
assumption of liability by the health care provider by means of a capitation arrangement
for the delivery of specified health care services to subscribers of the insurer.(emphasis
in original).

The term capitation arrangement is defined in Section
101.3(a) of Regulation 164 which provides, in pertinent part, that:

(a) The term capitation or capitation arrangement shall mean
contractually based prepayments (any payments made prior to the last day of the month
shall be deemed a prepayment of the entire months capitation) made to a health care
provider, on a per member per month or a percentage of premium basis, in exchange for one
or more covered health care services to be rendered, referred or otherwise arranged by
such provider and by its participating providers; . (emphasis in original).

Under a financial risk transfer arrangement, one party, such as a
health care provider, will confer a benefit of pecuniary value upon another party, the
insurer, by fulfilling the insurers obligations to the insureds based on the
happening of a fortuitous event (sickness) which is, to a substantial extent, beyond the
control of either party. Financial risk transfer arrangements have the elements of
fortuity and value, thereby falling within the definition of an insurance contract.

Here, Chapter 586 of the Laws of 1998 (hereinafter "Chapter
586") amended both the Public Health Law and the Insurance Law and, among other
things, imposed requirements regarding provider contracts. With regard to the Insurance
Law, Sections 41-d and 41-e of Chapter 586 amended Sections 3217-b and 4325 and added a
new paragraph (f) to each of those sections which states, in pertinent part:

(f) No contract entered into between an insurer and a health care
provider shall be enforceable if it includes terms which transfer financial risk to
providers, in a manner inconsistent with the provisions of paragraph (c) of subdivision
one of section forty-four hundred three of the public health law, or penalize providers
for unfavorable case mix so as to jeopardize the quality of or insureds appropriate
access to medically necessary services; provided, however, that payment at less than
prevailing fee for service rates or capitation shall not be deemed or presumed prima facie
to jeopardize quality of access.

(1) The commissioner shall not issue a certificate of authority to an
applicant therefor unless the applicant demonstrates that:

(c) it is financially responsible and may be expected to meet its
obligations to its enrolled members. For the purpose of this paragraph, "financially
responsible" means that the applicant shall assume full financial risk on a
prospective basis for the provision of comprehensive health services, including hospital
care and emergency medical services within the area served by the plan, except that it may
require providers to share financial risk under the terms of their contract, it may have
financial incentive arrangements with providers or it may obtain insurance or make other
arrangements for the cost of providing comprehensive health services to enrollees; any
insurance or other arrangement required by this paragraph shall be approved as to adequacy
by the superintendent as a prerequisite to the issuance of any certificate of authority by
the commissioner; .

There is no express licensing exemption in the Insurance Law for health
care providers who enter into these financial risk transfer arrangements with insurers.
The Department has, however, construed Sections 3217-b(f) & 4325(f) of the Insurance
Law (and Section 4403(1)(c) of the Public Health Law for HMOs) as implied, but limited,
exemptions to the licensing requirements contained in Article 11 of the Insurance Law. As
a result, with regard to financial risk transfer arrangements between insurers and
providers, insurers are authorized to enter into such arrangements with and to compensate
providers on a capitated basis (under the statutorily specified circumstances) without the
providers having to obtain a license from the Insurance Department.

In addition, Chapter 586 expressly authorized the Superintendent of
Insurance and the Commissioner of Health to promulgate regulations relating to financial
risk transfer arrangements between insurers and providers. As a result, Regulation 164 was
promulgated and aims at ensuring that, among other things, contractual arrangements
between an insurer and a health care provider are consistent with the requirements in
Section 4403(1)(c) of the Public Health Law. Regulation 164 also implemented a legislative
policy for reviewing the adequacy of these financial risk transfer contracts between
insurers and providers.

This Part implements, interprets and clarifies portions of chapter 586
of the Laws of 1998, which, inter alia, amended Insurance Law sections 3217-b and 4325 to
permit certain insurers, effective July 1, 1999, to enter into financial risk sharing
agreements with health care providers .

The inquirer specifically asks whether an intermediary entity
must obtain a license to enter into financial risk transfer arrangements with insurers. An
intermediary entity is recognized and defined in N.Y. Comp. Codes R. & Regs. tit. 11,
§ 101.3(i) (2002) (Regulation 164) as "a person or entity which enters into a
financial risk transfer agreement with one or more insurers and who contracts with one or
more participating providers to perform the services which are set forth in the financial
risk transfer agreement." Section 101.3(g) of Regulation 164 states that a health
care provider shall include, among other things, an intermediary entity.

As discussed above, although financial risk transfer arrangements fall
within the definition of an insurance contract, the Department has construed Sections
3217-b(f) and 4325(f) of the Insurance Law to be a limited exemption to the licensing
requirements for providers who enter into financial risk transfer arrangements with
insurers. Such arrangements must be in accordance with the provisions in Regulation 164
and Section 4403(1)(c) of the Public Health Law. Notwithstanding any prior Department
opinions to the contrary, in the HMO context, the Department has applied the limited
licensing exemption, afforded to providers, to Independent Practice Associations (IPAs)
that enter into similar arrangements with HMOs and providers.

Given that an IPA is similar in nature and function to an intermediary
entity, the Department has not required licensing for intermediary entities that enter
into similar financial risk sharing arrangements with insurers by contracting with
providers to perform the services set forth in the financial risk transfer agreement so
long as the arrangement complies with all the requirements in Regulation 164 and Section
4403(1)(c) of the Public Health Law. Any arrangement that falls outside of or violates
these requirements requires licensing on the part of the provider and/or intermediary
entity. Please note also that Section 101.4(b) of Regulation 164 provides, in relevant
part, that "[n]otwithstanding any agreement to the contrary, the insurer retains full
financial risk on a prospective basis for the provision of health care services pursuant
to any applicable policy or contract." In addition, Section 101.4(c) of Regulation
164 provides, in pertinent part, that insurers that use "a capitation arrangement to
transfer all or part of its financial risk to a health care provider must do so by means
of a contract approved by the Superintendent."(emphasis added).

arranging by contract for the delivery or provision of health services
by individuals, entities, facilities license or certified to practice medicine and other
health professions, and, as appropriate, ancillary medical services and equipment, by
which arrangements such health care providers and suppliers will provide their services in
accordance with and for such compensation as may be established by a contract between the
corporation and one or more health maintenance organizations which have been granted a
certificate of authority pursuant to the provisions of article 44 of the Public Health Law
of the State of New York as amended; .